The Gaza war has significant economic implications. The number of Palestinians living in poverty has surged dramatically, with an additional 300,000people falling into poverty by November 2023. The war caused a severe economic downturn, with employment in the Gaza Strip plummeting by 61% and the West Bank by 24% between October and November 2023. By March 2024, unemployment in the Palestinian Territories had soared to 57%, resulting in 500,000job losses.
Gaza's infrastructure and economy were struggling before the conflict, with 61% of the population living below the poverty line. The war exacerbated these conditions, causing extensive damage to homes, hospitals, schools, water and sanitation systems, and food security. The United Nations Development Programme (UNDP) reported that the conflict had set back human development in Gaza and the West Bank by 11–16years. By the end of December 2023, the Palestinian economy had lost $1.5billion, with Gaza's economy shrinking by 80% in the fourth quarter. In May 2024, it was reported that $50billion in investments had been wiped out, plunging 1.8million people into poverty.
Following the October 7 attacks, the Israeli government restricted 100,000Palestinian laborers from entering Israel for work, severely impacting their incomes. The increased Israeli military presence and settler violence further hindered mobility and economic activity. The situation was further exacerbated by Israel's withholding of tax revenues, affecting the pay of about 143,000workers between October and December 2023. The economic impact was particularly severe in Hebron's Old City, where 80% of businesses closed due to curfews and restrictions imposed by the Israel Defense Forces (IDF). The conflict and economic measures have had devastating effects on the livelihoods and stability of Palestinians in both Gaza and the West Bank.
Palestine According to the director of the UN Development Programme (UNDP) Regional Bureau for Arab States, Abdallah Al Dardari the number of Palestinians living in poverty has risen by 300,000 in November 2023. Between October and November 2023, it was reported that the war had caused a 61% drop in employment in Gaza and a 24% drop in the West Bank. The Palestinian GDP was expected to have fallen about 4.2% between the same time, compared with prior estimates with a loss of about $857 million. It was expected the figure to increase to about $1.7 billion if the war continued through December 2023. In March 2024, the International Labour Organization stated unemployment had risen to 57 percent in the first quarter of 2024, with 507,000 job losses in the Palestinian Territories. Gaza experienced a severe financial crisis as a result of Israel's attacks, with access to cash severely limited. Around 85% of the workforce in Gaza is currently without a job, resulting in a significant slowdown in economic activities. As a result, the region is functioning at a mere 16% of its full capacity, resulting in a severe economic downturn as described by the World Bank.
Gaza's infrastructure and economy
Poverty in Gaza was already characterized as severe before the war due to the ongoing Israel blockade, with 61% of the population considered below the poverty line according to the World Bank. After only one month of fighting the percentage has increased by about 20% with the number expected to increase by about 34% in the second month of the war. After one year, the UN Trade and Development body stated that the economy of Gaza was in "utter ruin" and that it would take 350 years to return to pre-conflict levels.
The war has caused devastating damage to Gaza's infrastructure and economy. The war has resulted in upheaval and destruction on a scale never before seen in the enclave. The United Nations Office for the Coordination of Humanitarian Affairs (OCHA) reported that over 41,000 homes were destroyed and over 222,000 were damaged. The war also badly affected hospitals, schools, water and sanitation systems, and food security. The UNDP has reported a predicted 11 to 16-year setback in the human development index across Gaza and the West Bank, with the amounts expected to grow during the war.
By the end of December 2023, the Palestinian Central Bureau of Statistics estimated that the Palestinian economy had lost a total of US$1.5 billion since the start of the conflict. In February 2024, the World Bank reported that Gaza's economy had shrunk by 80 percent in the fourth quarter of 2023. In May 2024, the United Nations Development Program stated $50 billion in investments had been wiped out and 1.8 million people had fallen into poverty. In August 2024, Gaza underwent a cash crisis as all banks ceased operations.
Employment in Gaza The war caused significant job losses in Gaza. As the war reached its one-month mark, 61 percent of employment in Gaza, equivalent to 182,000 jobs, was estimated to have been lost. By June 2024, the International Labour Organization stated unemployment was at 80 percent.
West Bank Shortly after the 7 October attacks, Israel had restricted about 100,000 Palestinians laborers living in the West Bank from crossing into Israel for work, per reported security concerns. These cross-border laborers accounted for about $5.5 billion, or about one third of the combined economy of the West Bank and Gaza according to the World Bank. Other Palestinians have also become hesitant to move around due to an increase in Israeli military movement and Israeli settler violence within the West Bank. According to then U.S. Treasury Secretary Janet Yellen, speaking in February 2024, "Blocking West Bank residents from working in Israel, it has a very significant negative effect on incomes in the West Bank." The International Labour Organization has estimated that as of December 2023 about 32% of employment or 276,000 jobs were lost in the West Bank since the start of the war with a loss of $500 million in October and November 2023.
In February 2024, B'Tselem reported that Israel had restricted Palestinians in the West Bank from harvesting their olive trees, stating, "The 2023 harvest was especially important this year as the Palestinian economy is already struggling due to the war in Gaza – particularly because of the prohibition on labourers entering Israel".
The West Bank was also severely impacted by the Israeli decision to withhold the tax revenues. Prior to the outbreak of the war, Israel and the Palestinian Authority had been in dispute over tax money that Israel collects for the West Bank and Gaza, causing the pay of about 143,000 workers to be affected between October and December 2023. The director of the Hebron Reconstruction Committee stated that 80 percent of businesses in Hebron's Old City were closed due to the IDF's curfews and closures.
In May 2024, the Palestinian Authority stated the Israeli finance ministry was withholding tax revenues, and as a result, public sector salaries could only be partially paid. U.S. Treasury Secretary Janet Yellen stated she was concerned about the reports. In July 2024, the government of Brazil announced it was adopting a free trade policy with the Palestinian Authority.
Israel The economic toll of the war may cost Israel an estimated $400 billion in lost economic activity over the next decade – threatens Israel's economic future. For Israel, 90% of the economic shock will come from indirect effects: reduced investment, slowing productivity growth and labor market disruption. According to the Bank of Israel, Israel’s war-related costs from 2023 to 2025 could end up amounting to $55.6 billion, thereby costing Israel 10% of its economy.
Due to Israel suspending Palestinian work permits, it recruited workers from India and Sri Lanka to fill the gaps. In the final quarter of 2023, the Israeli economy shrank by 20% caused due to labour shortages in construction and from the mobilization of 300,000 reservists. While Israel did still see economic growth of 2%, this was down from 6.5% growth in the year before the war. Further consequences of the war were that consumer spending declined 27%, imports declined by 42% and exports were reported to decline by 18%.
Israel's economy experienced a more significant decline than anticipated by market analysts, signifying the largest contraction in nearly four years, as reported by Israel's Central Bureau of Statistics' initial assessment. This downturn can be attributed in part to a decrease in business operations caused by the mobilization of workers for military service and the restriction of entry for Palestinian employees into Israel. Private consumption was the primary factor behind the economic contraction, experiencing a significant decline of 26.9%. Additionally, business investment plummeted by 67.8%, while exports and imports decreased by 18.3% and 42% respectively. However, government spending partially offset these losses by increasing by 88.1%, primarily due to war expenses. According to the statistics office, Israel's economy in 2023 witnessed a modest growth of 2%, but it was lower compared to the previous year's figure of 6.5%.
Israel has committed to covering both direct and indirect damages resulting from the 7 October attack near Ashkelon, where numerous missiles launched by Hamas hit. This includes compensating businesses for lost turnover and ensuring salary payments for affected employees. To support this effort, the government has established a loan fund of ILS10bn (USD2.7bn) and is providing grants to businesses experiencing a sharp decline in sales. Predicting the overall financial impact of the conflict is difficult, given the uncertainty surrounding its duration. However, it is evident that Israel and the broader region will face tough economic times ahead. Its central bank has revised its growth forecast for 2024 from 3% to 2% and anticipates that GDP recovery to pre-war levels will take over a year. Despite these challenges, spending needs persist. The government recently increased the national budget by approximately USD19bn and projected a 6.6% deficit for the current year, largely due to war-related expenses. In response to these economic pressures, major credit-rating agencies such as Fitch Ratings, Moody’s, and S&P Global are evaluating Israel's A+ rating for a potential downgrade. In August 2024, Fitch Ratings downgraded Israel's credit rating.
9,855 Thai workers in the agricultural sector, 4,331 workers in the construction sector and 2,997 in the nursing sector left Israel following al-Aqsa Flood. In addition, the prevention of 85,000 Palestinian workers from entering Israel created a shortage of about 100,000 foreign and Palestinian workers.
Israel will experience a significant economic shock, with 90 percent of its impact stemming from indirect consequences such as decreased investment, a disrupted labor market, and hindered productivity growth.
By 10 July 2024, 46,000 businesses in Israel were forced to close down due to the economic impact of the war, affecting almost every sector of the economy. Furthermore, on 12 July the port of Eilat declared bankruptcy resulting in it seeing no economic activity or revenue for eight months.
European investigations On 7 March 2024, the EU's top diplomat Josep Borrell announced that the European Union would be investigating Israel's compliance with the human rights clauses stipulated in its trade deal, the EU-Israel Association Agreement. In October 2024, Spanish Prime Minister Pedro Sanchez called on the EU to suspend its free trade agreement with Israel due to apparent violations of human rights clauses in the EU-Israel Association Agreement.
Military expenses